Monday, March 21, 2011

The Fiscal Clown Show

Outsourced this morning to Ryan Avent at the Economist:
About that deficit

It's hard not to be cynical about government policymaking, and this is why. Forget about fiscal stimulus for the moment. At present, both Republicans and Democrats are committed to cutting the government's budget in the current fiscal year. These cuts will almost certainly threaten programmes with positive economic returns; job retraining programmes are on the chopping block, for instance. Certainly few party leaders are seriously discussing new spending on programmes with positive economic returns.

...Libya poses no threat to America. It's far from clear that American intervention will yield positive outcomes for Libyans. And yet here America goes, launching massively expensive sorties, dropping massively expensive ordnance. And obviously it isn't just America, Britain managed to join the fight despite its austerity drive.

The point here is not that government spending should never be cut. It should be, and it almost certainly must be if America is to avoid a serious fiscal crisis down the road. But for a very long time now, much of official Washington—Democratic and Republican leaders, along with policy intellectuals and op-ed pages—has acted as though an immediate fiscal crunch loomed. This was never true. American debt levels may be an issue by the end of the decade, but they aren't now, and deficits are forecast to fall sharply for the next few years. Bond yields have rarely been lower. The fiscal problem is long-term, not short-term. And yet dire fiscal scenarios have been used to sell painful short-term cuts, some of which were necessary but could have been accomplished later, many of which weren't necessary at all.

I have nothing to add to this, except that this fiscal clown show makes me want to pull out my hair while jibbering incoherently. I try to keep that to a minimum, however.

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